Foreigners keep selling US assets; private outflows rise

Foreigners sold long-dated US securities for a fourth straight month in May, US Treasury data showed on Tuesday, with net private outflows rising to their largest since November 2008. Private investors sold $29 billion in US Treasury bonds in May, the largest since January this year, according to the Treasury report. Overall, foreigners sold $27.2 billion in long-term US securities during the month, compared with sales of $21.8 billion in April.
The bond sell-off by private investors coincided with expectations the Federal Reserve will scale back its stimulus program. Fed Chairman Ben Bernanke, speaking to the Joint Economic Committee of Congress on May 22, started to discuss the way in which the Fed might ease off on bond purchases, which led to a rout in the bond market. On a net basis, however, the data showed an inflow in US Treasury bonds of $11.3 billion, versus outflows of $38.3 billion in April. Official buyers, which include central banks, bought a net $40.3 billion in US Treasuries.
"The net long-term outflow picture likely correlated with the major sell-off in bonds in May, with expectations of a Fed tapering," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. China, the largest foreign creditor, raised its Treasury holdings to $1.3159 trillion, while Japan trimmed its holdings to $1.111 trillion.
Japan's central bank earlier this year started an aggressive stimulus program that will pour some $1.4 trillion into the Japanese economy in less than two years. Analysts expect that to keep the yen weak and push down Japanese bond yields, thus prompting more Japanese purchases of US assets. US stocks also fell out of favour after netting inflows in previous months. Foreigners pulled $8.6 billion out of equities in May after buying $11.2 billion in April.
Foreigners also sold $10.3 billion in US agency debt, after buying $22.8 billion in April. But demand for corporate bonds increased, with inflows of $7.6 billion in May after outflows of $4.7 billion the previous month. Including short-dated assets such as bills, overseas investors bought a net $56.4 billion in May, compared with inflows of $28.3 billion the previous month.